Curated by: Sergio A. Martínez
When most people think of Artificial Intelligence, they probably conjure the Hollywood depictions of evil robots that become sentient or self-aware, and then go out of control. However, even if this is the general pop culture stereotype of AI, the real-life technology is very different, already getting implemented in several key industries to streamline processes and improve efficiency. The Financial Technology sector is no different; AI is starting to have a major impact, from chatbots and digital assistants to complex algorithmic trading, reshaping the way we conceive and manage our finances.
And it’s not just big banks and financial institutions that are benefiting from the power of AI — FinTech startups use it to create innovative products and services that change the way we bank, invest and save, bringing more personalized experiences to customers by analyzing their spending patterns and providing tailored recommendations.
So, while AI continues to evolve, its increasingly significant footprint on the FinTech industry is making financial services more efficient and accessible, playing a crucial role by helping to automate various tasks, from customer service to fraud detection. For example, AI-powered chatbots can provide personalized financial advice, and Machine Learning is being used to develop predictive analytics tools that can help identify investment opportunities, or red flags to watch out for.
As a result, AI will only become more embedded in FinTech, transforming the financial sector by automating processes and providing real-time insights, and helping cut costs. Perhaps most importantly, AI will give organizations the ability to make sense of the vast troves of data they collect daily, using Machine Learning algorithms to identify patterns and trends that would be impossible for humans to spot. As a result, this technology is poised to profoundly impact the financial sector in the years to come.
However, the popularity of AI solutions in FinTech has also raised questions within the industry; after all, with machines driving more financial systems, is their traditional risk management ready to keep pace with an increasingly automatized approach that brings innovations and disruption almost daily? For any business, it’s important to stay ahead of the curve and make sure you are using AI to benefit your customers and your bottom line, and risk assessment needs to be considered to succeed at it. But what will it look like?
Risk assessment in FinTech: A job for robots?
As FinTech companies become increasingly reliant on AI, the need for robust risk management processes is more important than ever. By its very nature, FinTech is a highly innovative sector, which means new risks are constantly emerging. And while AI and Machine Learning can help to identify these risks promptly, as well as monitor any exposure to them by automating data analysis and providing accurate results, gaps still exist.
“One of the main concerns is that AI systems can be biased against certain groups of people, due to the data that they are trained on. If an AI system is only exposed to data skewed in favor of one group of people, it will produce biased results”, says Rod Aburto, Service Delivery Manager and Co-Founder of Scio. “And beyond that, AI systems can be hacked or tampered with, which could lead to disastrous consequences. These tools are still far from perfect, and there is always the possibility that they’ll make mistakes with serious implications, but despite these potential risks, AI remains promising.”
Combining Machine Learning and AI can help financial institutions to make more informed decisions, like assessing the impact of new regulations on a business model or identifying risks associated with their products and services, but the availability of data is an important matter: the final assessment is only as good as the information entered into the system. This means FinTech companies need to be especially vigilant in their risk assessments due to the rapidly changing nature of the information. For example, if a training dataset is predominantly male, a Machine Learning algorithm may learn to associate certain traits with being male, leading to biased results when applied to a broader population.
In the specific case of FinTech, a way that bias can be introduced is through algorithms that have been designed to achieve a particular outcome, rather than being impartial. An algorithm designed to identify creditworthy individuals is likely to be biased against low-income applicants, leaving people in need of these kinds of services out.
Another challenge for FinTech companies reliant on AI to provide their services is that they are vulnerable to attacks by hackers who could exploit weaknesses in these systems. Hackers could gain access to sensitive customer data or even manipulate the algorithms used by FinTech companies, leading to disastrous outcomes. So when it comes to FinTech, security should be a top concern, and data breaches and security vulnerabilities can have a devastating impact on both consumers and businesses when machines cannot make critical decisions on their own. That’s why it’s so important for fintech firms to have robust security measures and know the risk involved in pure automatization.
A balanced future in FinTech
“FinTech is an industry constantly evolving, and there are many good practices around risk assessment, but at its core, risk assessment in FinTech should focus on three key areas: regulatory compliance, customer impact, and business resilience”, continues Rod Aburto about the challenges in pure automatization. “And when it comes to implementing AI tech in this area, responsibility, due diligence, and human intervention are key to ensure they work as intended. These machines are more than capable of digesting data and coming up with insights than almost any person but are not infallible. Without human expertise guiding and implementing actual useful results, it’s easy to render any outcome from AI less than ideal.”
AI is revolutionizing the fintech industry at every level, from software development to customer service. According to the International Data Corporation (IDC), “the worldwide market for AI software, hardware, and services is expected to surpass $500 billion by 2024”. As more FinTech companies are using AI to create new and innovative products and services that make financial services more efficient and accessible, it’s important to keep in mind that an ethical, responsible, and effective implementation of AI is one where humans are kept in the loop and can be made accountable for any mistake. AI will only become more embedded in FinTech as the industry evolves, and for businesses, it’s important to stay ahead of the curve and make sure you are using AI to benefit your customers and your bottom line.
So, by conducting responsible and human-curated risk assessments, FinTech companies can stay ahead of the curve and make sure that their products and services are as safe and secure as possible.
The Key Takeaways
- The FinTech sector is one of the most innovative, and technologies like AI and Machine Learning are finding implementations in almost every area.
- AI brings a speed of automation of processes, insights, and results without precedent, and while exciting, challenges arise alongside these tools.
- Traditional risk assessment needs to keep pace with the technological revolution and has to keep a watch out for weaknesses and biases in these systems.
- Human intervention and interaction will still be necessary for the foreseeable future, guiding these systems and achieving their best outcomes.
Scio is an established Nearshore software development company based in Mexico that specializes in providing high-quality, cost-effective technologies for pioneering tech companies. We have been building and mentoring teams of engineers since 2003 and our experience gives us access not only to the knowledge but also the expertise needed when tackling any project. Get started today by contacting us about your project needs – We have teams available to help you achieve your business goals. Get in contact today!